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The effect of monetary policy shocks on stock prices accounting for endogeneity and omitted variable biases

  • Farka, Mira

A new high frequency data set is used to estimate the impact of the Fed on the level and volatility of stock prices while accounting for endogeneity and omitted variable biases and potential asymmetries. Results show that after addressing these issues, the effect of policy shocks on the level and volatility of stock returns is higher than previously reported. GARCH findings indicate that the volatility impact is tent-shaped, spiking during policy announcements and declining before and after the release. The level and conditional volatility of stock returns is found to respond asymmetrically to the type of policy shocks (timing versus future path of monetary policy) and the type of policy action (easing versus tightening).

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File URL: http://www.sciencedirect.com/science/article/B6W61-4T4XRG3-1/2/cc8914e27b4919d8b54b595d62cb3648
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Article provided by Elsevier in its journal Review of Financial Economics.

Volume (Year): 18 (2009)
Issue (Month): 1 (January)
Pages: 47-55

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Handle: RePEc:eee:revfin:v:18:y:2009:i:1:p:47-55
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620170

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